Real Estate Insider: July 2018 News Report

Welcome back everyone! With more than a few hot topics this month, we've made sure to scope out the best reads you won't want to pass up. Do you agree with condos banning smoking with the legalization of marijuana? What is the issue with having Kitec plumbing on your property? How can you save money on your flooring renovation? We'd love to hear your feedback on these topics plus more in this edition of the Real Estate Insider!

Everyone knows the phrase “Location! Location! Location!” when buying a home or business. There are many factors that can increase, or decrease the value! Which do you think living next to a cemetery will do? Find out here! >>

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Building your dream home? Congratulations! While this is an exciting time, we want to make sure you are getting the best tax return on your current home as possible! This can be a tricky situation, read this article to get started! >>

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You don’t have to start with a lot to become a successful real estate investor. Read how at 27, Paula Pant was paying $400 a month in rent to share a kitchen and bathroom with roommates, and at 34, she now has 8 homes!  >>

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Don’t let your ego get in the way of your financial strength! Read here for various reasons why you should put your ego aside when thinking about buying a home. >>

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Ahead of the legalization of recreational marijuana, some condos are taking pre-emptive steps to make sure they ban smoking on their properties. Do you agree or disagree with this move? Read more here. >>

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The age-old question of “fixed vs. variable” mortgage rates continues in this article following the rumours of another rate increase before the end of 2018! Read here. >>

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A deceased person could have assets not controlled by their executor. Who is entitled to these assets? Read here for some insight on the different parts of an “Estate Pie” and who all gets a slice! >>

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Kitec plumbing could be an issue when buying or selling a property that contains it. Watch this video for 5 things to know about Kitec plumbing! >>

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Pooling resources can be a great idea when buying or renting a home to get more for your money, as long as everyone is protected! Read here for tips to avoid costly or ugly scenarios down the road! >>

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Floors are often the last things to go into a renovation project, so make sure to finish strong! Here are 5 ways to save money on flooring. >>

Mortgage Renewal Time: Should You Refinance Your Investment Property?

Hope you guys are enjoying this warm weather!  This summer, I have my student rental property’s mortgage coming up for renewal. I’ve been weighing my options on what I should do. One of the options is to refinance the property and pull out some equity, but this option isn’t best for everyone. Today I am going to discuss investment property refinancing and some important considerations.

Why Would I Want to Refinance My Investment Property?

Basically, to pull out the equity to use the cash for something else—hopefully not to buy a depreciating asset such as a new boat or SUV! To give a good example, say you had the opportunity to invest in something that you expected to return about 10% per year, but you didn’t have the cash required. You could refinance your property, pull out some equity and use that cash to fund the investment opportunity.

How Would the Refinancing Work?

Lets continue with the above example. Say you bought a property for $200k five years ago with a first mortgage of $160k (80% loan to value).   Assume your mortgage is up for renewal this summer and have approximately $150k left on the mortgage, but you estimate the property is now worth $300k. You could find a lender to refinance the property at 80% loan to value at the $300k, or $240k on the new first mortgage. Since you only owe $150k on your previous mortgage, you end up with $90k back in cash ($240k-$150k), aka “pulling out your equity”, after the refinancing closes.

Does Refinancing Make Financial Sense For Me?

It depends on the scenario. Continuing on with our previous example, if you have an investment that is estimated to return about 10% per year and you were able to refinance at market interest rates (as of this time I would estimate about 3.5%), then yes: it would make sense to do the refinancing. Earning 10% while using the bank’s money at 3.5% sounds good to me☺.

Will All Lenders Refinance My Investment Property?

Good Question. The answer is that it depends. Lenders have definitely pulled back in the last few years and investment properties are one of the areas they have pulled back the most. Some lenders will do 80% loan to value refinancing, while others will only do 65%. Some will do it with an entire first mortgage, and some will do it with a combination of a first mortgage and a secured line of credit.

Is It Easy To Be Approved For The Refinancing?

Not exactly. You will have to re-qualify with the lender based on debt ratios. If you are too indebted either in total debt owing or with number of mortgages (if you have multiple investment properties), they could decline you or not offer you the full refinancing you are looking for.

After I Refinance Will My Property Still Cash Flow?

That’s another good question and consideration. You will have to run the numbers!  It's possible that it won’t with the higher mortgage payments—something to weigh. If you are using the extra cash for a lucrative, high cash flowing investment, then you could now use that cash flow to service the shortfall on this property.

What If I Don’t Have A Present Investment Opportunity For The Cash?

Lots of good questions today! You should wait on the refinancing until you do have an investment opportunity. Or, instead consider getting a secured line of credit and that will not incur any interest costs until it is being drawn upon, but will be there when the opportunity arises.

Does My Mortgage Need to Be Up For Renewal to Refinance?

No it doesn’t. You can refinance anytime but there can be substantial penalties if breaking your mortgage early, especially if you have a fixed rate or if you have lots of term left. By staying with the same lender it is possible to waive some of these penalties. Refinancing around your renewal period avoids these penalties and will only result in minor mortgage discharge and legal fees.

Any Other Considerations?

You will need to get an appraisal for the lender from an AACI appraiser and any refinancing would be based on that amount. You should also think about how this affects your tax situation. By refinancing and increasing your mortgage amount and interest costs, you should technically be decreasing your rental income from that property from having higher expenses.

Final Thoughts

Unlocking your equity by refinancing can be a powerful strategy for investors building their wealth. It isn’t foolproof though, and should be used prudently. If it's something you are worried will stretch you too thin and cause you insomnia, then it's probably best to avoid it. Sitting down with a plan with your team (realtor, mortgage professional, accountant, etc.) should help you decide if it's right for your situation.

Readers, have you refinanced an investment property?  

Real Estate Insider: June 2018 News Report

Housing prices are moving on up and houses are harder to come by! Whether you're investing, buying your first home, selling, or renting, we've found 10 topics you need to look at before you make your next move.

Real Estate investing can be hugely profitable, but only if it’s done right! Read these 7 lessons one man learned from failing in Real Estate Investment (so it doesn’t happen to you)! >>

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Statistics show many young professionals and new families are moving back home to their mid-sized cities and towns and shying away from the “Big City Dreams”. The reason? These revitalizing cities are showing great potential and opportunity for everyone! Read more about the mid-sized city magnetism here. >>
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With the recent hike in property value in many Canadian cities, a lot of people are doing the math on how much money they have made on their home. But it’s much more complicated than most people think! Read this article to make sure you are calculation your ROI on your home correctly! >>

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Here’s a list of home insurance discounts most people don’t know about. See which ones you qualify for to make sure you are getting the best rate on your home insurance! >>

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When do you think the target age of home ownership should be? Discover The 2018 Zoocasa Housing Trends Report for the ideal time to buy a home. >>

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“What is capital cost allowance and when can I claim it for my rental?” >>

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Are you thinking about selling a rental property that is currently occupied? Here are 5 things to remember when selling a House with a Tenant! >>

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Regulations and zoning issues have made it difficult for builders to construct new single-family homes in some of the hottest real estate cities in Canada. The result? People overpaying for homes! Find out by just how much here. >>

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Looking to pay down your mortgage a little earlier than planned? Read here for a wide variety of tips on how to pay off your house earlier than expected! >>

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Passive income is quickly becoming the most sought after source of financial freedom and comfortable retirement. Check out this in-depth analysis of Triple Net Properties. >>

Russel's Review: Thoughts & Pointers After Completing A Large Renovation On An Investment Property

I just recently passed the five year anniversary of buying my first rental property! What a ride it has been. It was a detached home with an unfinished basement. As I chose a five year term, my mortgage was up for renewal this spring. I saw this as an opportunity to finish the basement, to get the property reappraised, and to refinance the property at the improved value (I can touch on this investor mindset in another post). Well, I just finished the renovation (managed the job myself) and I wanted to share some of the thoughts and pointers that I learned during the process.  Hopefully you can use some of these on your next renovation!

Everything Always Takes More Time Than Projected

This is a pretty standard one. Things happen and it throws other things off schedule. Plan for this in advance and allow for a very conservative contingency period.

Get Three Quotes For Large Trades Jobs

Some of the variance in the quotes were huge. Sometimes these trades guys are too busy and give quotes almost as if they don’t want the job.  Get three to make sure you know where you are at.

Don’t Always Take the Cheapest Quote

To build on the last point, the cheapest quote shouldn’t automatically be chosen. Make sure you understand the quality you are getting. Often the middle quote ends up being the best deal!

Ask for Referrals

Ask the professionals you work with for referrals to different skilled trades. Sometimes just saying to someone on the phone “so and so referred me” gets you better treatment. I wouldn’t refer someone to a friend unless I was very confident they would do a good job!

For Rental Properties Choose Neutral Materials

A good saying that is common in the real estate rental world is “choose things for 90% of people, 90% of the time”.  Don’t ever choose anything ornate or too trendy as it might not be most people’s taste. Remember that your not living here…

Keep Detailed Notes

This project has been an invaluable experience to understand firsthand how much different jobs and materials cost and the time frames associated with them (drywall, electrical, plumbing, tile, paint, framing, etc). This will give me a big leg up on my next project. Document things on a weekly basis—or even more frequently—to stay organized.

Shop Around For Materials

This seems obvious but you can save quite a bit if you shop around for the larger materials you need. If you know you need to buy tile, but not for while, you can keep an eye out for sales and save hundreds of dollars.

Buy As Many Things As Possible With A Credit Card

First off, it will keep things organized by having many of the items on the same statement making for easy bookkeeping. You can rack up a boat load of points as well ☺.

Splurge on A Few Things

As long as it doesn’t break the bank, it’s a good idea to splurge on a few items. In my case, I did a large tiled glass shower, a shiplap fireplace with a sweet napoleon electric fireplace and some upgraded funky laundry cabinets. Now I have some nice selling features for the next renter or for when I go to sell the property.

Pay Your Workers Right Away

If your trades did a great job, pay them promptly to keep them happy. You can use them again in the future and having a list of these contacts is invaluable. If they know they will be paid fairly and promptly, they won’t think twice about working for you again!

I could go on and on about this renovation but these were some of the items I thought would be useful for our readers. See the accompanying videos and photos and tell me how you think I did!

 

Real Estate Insider: May 2018 News Report

Hello there, Real Estate Insiders! Get ready for some of the most important topics we've discovered yet. Why you need a lawyer if you're selling your house, the best way to approach mortgage renewal, and why it's harder for Millennials to buy are just a few of the reads we have in store for you. 

There’s a lot of things you can do to save some money, but skipping out on a Real Estate lawyer when buying a home should NEVER be one of them! Read why it can end up costing you way more than the legal fees if you decide to buy a home without a lawyer. >>

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While owning a condominium in Toronto and renting it out may seem like a great investment, it appears nearly half aren’t getting enough rent to cover their costs. Is it still worth it? >>

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If you sold your home after 2016 and didn’t report it to CRA, you might be looking at hefty fine! Read here to stay updated on all the forms and necessary steps to avoid an unwanted call from the CRA. >>

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If you own a rental property with more than two people, tax season can be tricky! Be sure to know how to split these taxes fairly, and you can start by reading this article! >>

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If you are thinking of investing in your first rental property, this article is for you. Be better prepared to make this decision. Should it be a house or condo? Duplex? Where are you living now? This article has all the right questions you might not have thought to ask! >>

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“My mortgage comes up for renewal this year.” If you are in the same boat as these authors then you should definitely read their mortgage renewal strategy to help with your own! >>

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Think that if you can afford the down payment and the mortgage payments you can afford a house? Think again! There are a lot of costs involved in buying a home and we want to make sure you are financially prepared for all of them. Read this list so there are no surprises on closing day! >>

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Real Estate Lawyers discuss the "5 Things to Know about Government Standard Lease Form”. >>

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The 2018 OSFI stress test has cut Millennial purchasing power by over $40,000! What does that mean for first time home buyers? >>

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With a lot of things now being done online, should dealing with a mortgage broker be one of them? Read the pros and cons of going online for a mortgage. >>

Posted Rates – How Do They Affect My Mortgage?

Hopefully you are enjoying the spring weather that has finally arrived ☺ .  You may have heard in the news over the past few weeks that some of Canada’s chartered banks have increased posted rates on their mortgages. These were generally accompanied by a call to action to get locked in before rates go up!  But what exactly does this increase in posted rates mean for you as a borrower? Today, we are going to cover what you need to know so you can be an informed shopper!

What Exactly Is a Posted Rate?

A posted rate is essentially the mortgage rate that the banks and other lenders publicly announce.  It got its name literally from how banks post their mortgage rates on the wall within the branch. Back in the pre-technology days, that was one of the only ways for borrowers to figure out how much interest rates were—to walk into the branch to check out the rates posted on the wall!

Are the Posted Rates What I Should Expect to Pay as a Borrower?

No, definitely not. Posted rates are usually inflated by 1-2%. To give you an example, on May 9, 2018, on a 5 year fixed mortgage, BMO has a posted rate of 5.19% and a best rate of 3.29% (as per ratehub.ca). Now, not everyone can qualify at best rates but you see the significant spread.

Why Do Banks Have Posted Rates Then?

For profits! It sounds bad, but essentially it’s a bit of a game where the bank hopes that borrowers aren’t financially savvy. If you don’t shop around you may not know what market interest rates are and are less apt to negotiate. Plus, it gives them room to negotiate a “discount” (Ie they offer you 1% below posted rates and you think that is a deal but 2% below their posted rate is easily attainable in the market).  One other major reason to note is that mortgage penalties on fixed rate mortgages are usually calculated using a complicated interest rate differential formula.  For example: say you were breaking your mortgage and the interest rate is currently 5%, but rates have since gone down and now the interest rate is 4%. Therefore, the bank has an interest rate differential of 1% that they are missing out on so will charge you the difference by way of your mortgage penalty. But these interest rate differentials in your mortgage contract usually compare posted rates with your discounted rates, and usually because of this 1-2% artificial spread, the interest rate differential can be quite large, equating to penalties of thousands of dollars.

What Else Should I Know About Posted Rates?

Now that the government has implemented stress testing for mortgage qualifications in Canada (click here for more info on the topic), posted rates do have an impact on the mortgage amount you can qualify for. So these increases in Bank posted rates have resulted in the Bank of Canada raising their qualifying rate. This is the main effect from the posted rate increases. If you were planning on buying something later this year and were bumping up into the maximum mortgage amount you qualify for, this may negatively affect your ability to buy in the same price range as before.

The next time you hear about banks increasing posted rates, now you know what it means for you. It doesn’t necessarily mean interest rates on your mortgage are increasing. Always read beyond the headline!

Real Estate Insider: April 2018 News Report

Welcome back, readers! We hope everyone has been enjoying the weather now that spring has finally arrived. We've found some hot topics and informative blogs for you to read in between any yard work this weekend. Grab some coffee as we have a look at the perfect house to raise a family in, the marijuana commercial real estate boom and more in this issue of the Real Estate Insider!

AirBnB has become more and more popular. It could potentially be a good way to earn a little extra cash, but only if you do your homework! Read here for tips and how to calculate your return on your potential AirBnB property. >>

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Whether you are for or against the legalization of marijuana, you can still reap the rewards in ways other than buying it! Read how here. >>

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Do you have mortgage insurance? You may want to think twice! Here are 5 reasons to go a more traditional route. >>

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There is a stigma behind “Capital Gains Tax” that seems to rub everyone the wrong way, but broken down it can be seen it is one of the more fair taxes out there! Read more here. >>

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Everyone is going green, you should too! And if you start with this smart thermostat, there is no cost! >>

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One of the most powerful financial tools to help grow your wealth is leverage. So you should be using leverage whenever possible, even on home renovations! Learn how this couple used their leverage on their home renovation to maximize rewards and stretch their budget further. >>

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The Financial Samurai walks you through their idea of the “Ideal” house to raise a family, everything from layout to bedrooms to which direction to face! Check it out here. >>

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What to do when facing ‘renoviction’. >>

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Are you in the market for a mortgage? Read here why variable rate mortgages are the better deal right now. >>